Tracking the market and economic trends that shape your finances.

Manufacturing reports confirm slowing U.S. growth

July 15, 2010 | 12:36
pm

The day’s data on the economy are pointing to more of the same: slowing growth.

That’s all it took to send some investors back to the relative safety of Treasury bonds, driving yields down again. The 10-year T-note yield is back below 3%, and stocks are mostly lower. The dollar has tumbled to a two-month low against other major currencies.

Regional reports on July manufacturing activity in the New York and Philadelphia Federal Reserve Bank districts both had the same message: Activity still is expanding, but at a slower pace.

Because manufacturing has been one of the brightest spots in the U.S. economic rebound, any weakness stokes fears that the recovery could give way to another recession -- although for now, the data show a slowdown, not a contraction.

The New York Fed said its monthly manufacturing survey “indicates that while conditions for New York manufacturers continued to improve in July, the pace of growth in business activity slowed substantially over the month.”

The Philly Fed also saw a slowdown in manufacturing this month. Also, the bank’s indicators of future activity “continue to suggest that the region’s manufacturing executives expect growth in business over the next six months, but optimism has waned notably in recent months.”

“The slowing in manufacturing in the Philadelphia Fed report was even more noteworthy in that the weakness was concentrated in new orders, which is clearly a leading indicator of future demand for finished products,” said Steven Ricchiuto, an economist at Mizuho Securities USA in New York.

Separately, the Fed in Washington said industrial production inched up 0.1% overall last month, thanks to a jump in utility output tied to the Eastern heat wave. But manufacturing output fell 0.4% after strong gains in March, April and May.

Treasury bond bulls crave any sign of economic weakness because it raises the potential for more investors to abandon stocks in favor of government bonds as a hiding place.

The 10-year T-note yield was down to 2.97% at 12:15 p.m. PDT from 3.04% on Wednesday. The recent low for the yield was 2.93% on July 6.

Meanwhile, buyers have pushed the five-year T-note yield to a new 15-month low of 1.74%, from 1.81% on Wednesday.

The appetite for puny -- but guaranteed -- yields remains robust. That's a big bet on more economic pain.